Ep. 105 - The High Cost of Cheap Legal Advice

What's the real cost of cutting legal corners in your startup? Attorney Lucas Regnier explains why your choice of business structure can significantly impact your growth trajectory.

The podcast delves into the often-misunderstood world of business entity selection, examining why LLCs, despite their popularity, may not be the optimal choice for growth-focused ventures. Regnier shares valuable insights about the limitations of LLCs when adding new owners or seeking investment capital, contrasting this with the advantages C-Corporations offer for dynamic businesses.

"A little bit of lawyering five years ago could have saved you ten times the lawyering and the pain later," Regnier explains, recounting situations where entrepreneurs found themselves trapped by poorly structured legal foundations. The conversation illuminates the concept of "corporate hygiene"—the documentation and record-keeping essential for business legitimacy that becomes critically important during investment due diligence or acquisition talks.

Perhaps most eye-opening is the discussion of securities law compliance. Many founders don't realize that selling any interest in their company triggers legal requirements that, if ignored, can create significant liability. Mark, Eric, and Lucas break down what constitutes an "accredited investor," why this matters for fundraising, and how to avoid inadvertently creating what Lucas calls "a loaded gun that investors can point at your head" if relationships deteriorate.

The episode concludes with a passionate discussion about building better bridges between entrepreneurs and investors in emerging startup ecosystems, with practical advice for founders navigating these complex waters. Whether you're just starting or scaling up, this conversation provides essential guidance for creating a legal foundation that supports rather than hinders your business growth.

Episode Transcript

Speaker 1 (00:00):
So no, I tell them this 10 times a semester that
lawyers are like anybody else.
They're not all the same andyou need people who are
specialized in the problem thatyou are encountering.
Hey before we get too far intothat.
This is another episode of BigTalk.

Speaker 3 (00:20):
About.

Speaker 1 (00:21):
Small.

Speaker 3 (00:21):
Businesses.
Talk about small businesses.

Speaker 1 (00:33):
All right, we are back.
Yes, sir, it's exciting.
It's so good to be here withyou guys.
It it is it in the studio.
Today we've got a very specialguest, uh, lucas reynier.
I call him luke, it's generallywhat he goes by.
I'm sure people probably callyou regnier and all kinds of

(00:56):
stuff right mangled nine ways tosaturday.

Speaker 3 (00:59):
Back again, but reynier reynier say there you go
.
No one's going to get sued forsaying his name wrong.

Speaker 4 (01:05):
You sure about that?

Speaker 2 (01:06):
Yeah.

Speaker 1 (01:09):
Luke's an attorney and has a business here called
Startup Boutique that servesstartups in other businesses
Well all kinds Small cap, midcap ventures.

Speaker 4 (01:21):
But we get a lot of traffic from our local community
of young founders Maybe theirfirst encounter with legal and I
get them fresh and green and Iget to mold them the way they
need to be molded oh my God.

Speaker 1 (01:34):
Beautifully.
I love it Like putty in yourhands, right.

Speaker 4 (01:38):
Like clay in the canes of a god.

Speaker 1 (01:42):
Hey, before we get too far into that, this is
another episode of Big TalkAbout.

Speaker 3 (01:48):
Small Businesses.

Speaker 4 (01:52):
Best podcast on the web.

Speaker 1 (01:53):
Yeah, so, luke, you know I always tell my students.
In fact, last night I had togive them this lecture.

Speaker 3 (02:01):
What do you do to hang out with your students at
night?
I teach at night.

Speaker 1 (02:05):
Oh, okay, I'm just getting clarity.
God, anyway.
So no, I tell them this 10times a semester that lawyers
are like anybody else.
They're not all the same andyou need people who are
specialized in the problem thatyou are encountering.

(02:25):
I don't go to you for divorce.
I don't go to you for traffictickets.
I don't go to you for my wills,trusts and estates.
Can you help me with my?

Speaker 3 (02:35):
DWI though.

Speaker 1 (02:37):
You don't have a.

Speaker 4 (02:38):
DWI.
Be careful there.

Speaker 1 (02:41):
But I do go to you for all these ownership-related
situations and that's what youknow.
And I think people think well,I'm going to save money and go
to this guy over here becausehe's cheaper, or it's my mom's
sorority friend or sister fromcollege or whatever.

Speaker 4 (03:00):
Right, that's a fantastic point that you
actually raise in your book.
Confessions of an Entrepreneuris to focus on the people who
are able to help you.
That goes not just legal, butaccounting.
Oh, yeah, you know, sometimesyou've got a CPA who doesn't
understand LLC accounting, yeah,and you find yourself in
untangling messes that maybeshould have never occurred.
Amen to that, exactly right.

(03:20):
Never occurred.
Amen to that, exactly right,you know.
And so you know I do try tosteer people where they need to
be if they have a legal problemthat you know that I can't help
with.
But for the most part, you know, you're right.
There's an old adage beware thehigh cost of low price.

(03:42):
Some people will just go for thelowest cost service provider.
You know, startups are on ashoestring, we're really
conserving costs, and so here'sa guy that's cheap, and then you
know, what you create is aproblem that has to be unwound
later at a factor of 10.

Speaker 1 (03:58):
How many times have we encountered that?

Speaker 4 (04:02):
I mean, yeah, it's putting my kids through college
encountered that.

Speaker 1 (04:10):
I mean, yeah, it's putting my kids through college.
I mean it's so.
Yeah, we had one situation likethat that you were involved in
with that llc conversion to a ccorp and you know, as it got too
many owners over time with avery poorly drafted LLC
operating agreement.

Speaker 3 (04:28):
Yeah.

Speaker 4 (04:28):
I mean Dr Cassini-Spurgeon, if they ever
drafted that.
It may have been appropriate atthe time.
But as a business grows, it hasnew needs and it needs to adapt
, and this is another.
This is a soapbox.
I get on about LLC's.
We'll talk about that later ifyou want.
But yeah, that was a toughsituation that we're a little
bit of lawyering about fiveyears ago could have saved you
ten times the lawyering and thepain.

(04:50):
Later you find yourself in aposition where an absent founder
with ambiguous rights maybe hasthe ability to like bend you
over a barrel and squeeze a lotof value out of you.
Exactly Everybody goes to theirlawyers and realizes nobody
knows what our rights are.
What could have been a $5,000legal investment is now maybe a

(05:11):
$50,000 piece of litigation.

Speaker 1 (05:13):
Yeah, or $200,000 negotiation, exactly, right.
Yeah, it's so true.
It's penny wise and poundfoolish.
Yeah, and I think you know, asyou said earlier on, I mean, how
you start a business the legalfoundation of that enterprise is
critical to how it evolves,right, right?

(05:35):
You know, it's not just a.
It's not just a formality, likego create an llc, you know, is
that the best legal form oforganization for this business?

Speaker 4 (05:47):
Not always.

Speaker 1 (05:48):
Depends on what I'm going to do with it and what
kind of business it is right.

Speaker 4 (05:51):
Right, right.
It seems to be the defaultassumption anymore is that it is
an LLC.
It is.
There's a video that keepspopping up every time I get onto
you, mark Cuban, talking aboutwhat to do when it's time to
start your LLC Not should youstart an LLC, but when you're
going to start your LLC.

Speaker 1 (06:08):
Not your company, but your LLC.
They've automatically decided.
It's predetermined, you'reright.

Speaker 4 (06:15):
So you know LLCs are.
They're a very tax-specific typeof entity that are very
attractive for certain reasons,but I don't find them to be the
best way to run a dynamicenterprise where you're looking
to scale up and add on newowners.
They have a lot of oldpartnership law grafted onto the
gaps.
That creates, as we'veexperienced, mark you and I,
some very painful consequenceswhen they're not properly

(06:35):
lawyered up.
So I frequently encourage myfounders if they come in to me
with an LLC, let's convert to aC-Corp.
If they come in with a blankquestion, I say why don't we
start with at least an S Corp?
Then you can change yourelection later.
But let's talk about stockshares, not about percentage
Exactly.

Speaker 1 (06:55):
I mean, look at one of the companies that you handle
all the ownership-related stufffor now.
Okay, I mean, you're doing allthe legal stuff that we need the
board minutes, the filings thatwe have to do.
Stock sales are comingthroughout the year, right,
Right, right.
You couldn't even do that if itwas an LLC.

(07:18):
Every time somebody buys stockor sells it, we'd have to
redraft the operating agreementand get it re-signed.

Speaker 4 (07:24):
Right, it's not a real organism, I think, for
dynamic business development,particularly people who are
taking on new owners, and thisis a curse of this is a thinking
that gets stitched in with alot of founders is that we think
about bringing in new owners.
Everyone's thinking in terms ofpercentages and you try to get
people weaned off of that.

(07:45):
Let's think about terms ofshares numbers of shares.

Speaker 1 (07:48):
I've had that problem .
I've thought the same way.
I mean, you know I have Right,you do back-of-the-gun look
calculations.
Right, you've dealt with me onthat very problem.

Speaker 4 (07:58):
Okay, it gets worse.
But the problem is that.
So you start with, you tell oneguy he's got 10% and another
guy you're giving him 5%,someone else is giving him 3%,
but no one's calculatingdilution as you go and it
creates a situation of ambiguityif it's not properly documented
or ill will.
Right, oh, I thought I had 10%,now I've got like 6%, how'd

(08:20):
that happen.

Speaker 1 (08:20):
I didn't agree to this other stuff.

Speaker 4 (08:22):
Right, right, I thought what did I pay for?
So it's problematic.
So we're trying to get peopleweaned off of thinking about
percentages and thinking aboutsome sort of objective criteria
of ownership.

Speaker 3 (08:33):
So what's the value of an LLC then?
I mean there's got to be somevalue to it, For sure.

Speaker 4 (08:37):
Well, first of all, one of the main values is a
pass-through tax entity, so theLLC itself doesn't pay taxes
like a C corporation would Like.
A C corporation has to file atax return 1040 if it's on.
The LLC is all pass-through, sothere's not that curse of
double taxation.
The LLC makes a hundred grand.
It's not like it gets taxed andthen you distribute it to

(08:58):
everybody and then they gettaxed again.
Okay, llc, so it's apass-through entity.
Llc will issue what's called aSchedule K every year with
everybody's prospective sharesof whatever the LLC made Made
for tax purposes by the way, youmay not have seen a nickel?
Yeah, exactly.
But if the LLC made $100,000,didn't distribute any of it and

(09:19):
you own 50%, guess what you justgot?
50%—excuse me $50,000 worth ofincome that you didn't see a
nickel off of.
So you hope that the LLCoperating agreement says we're
at least going to distributeenough to cover your tax
obligations.

Speaker 1 (09:32):
By the way, I'm glad you—I don't mean to interrupt
you but, I think it's a reallyimportant point people need to
understand, when you've got apass-through entity like that,
that you're taxed based on whatyour K-1 says, whether you got
the money or not.
Right, and the way thegovernment looks at it is, if
you left it all in there, it'slike you made this money, okay,

(09:54):
now we're going to tax you, thenyou reinvest it.
That's the way they look at it.
But the good news also is youcan take money out of that
pass-through entity at any timeand have no tax obligation on it
the cash potentially as long asyou've got a positive basis.

Speaker 4 (10:11):
Right.
So the LLC is not taxed, itdoesn't file its return, it
doesn't pay like the whateverpercentage it's deemed ordinary
income for most people.

Speaker 2 (10:18):
Yes.

Speaker 4 (10:20):
I'm sure I'm going to get nitpicked by some tax folks
on that, but it's deemed to be.
I'm sure I'm going to getnitpicked by some tax folks on
that, but it's deemed to beworth it.
The LLC makes a million dollarsin revenue and you've got 20%.
You just recognized a taxableevent of $200,000.
You better hope the LLC isgoing to at least distribute
some money to help you coverthat.
Eric, to answer your question,what I like them for typically

(10:40):
is for asset holding, so I thinkit's a better vehicle for you.
You're going to invest, get apiece of real estate, a piece of
property, something that's alittle more static.
I think that's a great way todo it.
Why is that though listen forthe tax purposes and because
LLC's are really like lowmaintenance.
You know you don't have to havemeetings and it's just like the
doc.
You file your certificatehopefully you get a good

(11:03):
operating agreement and thenhand it over to your lawyer and
CP.
They're pretty low maintenance.

Speaker 3 (11:10):
On the tax side and the legal side.
Really, if you're a sole ownerof this LLC, it's excellent for
asset type of businesses, realestate, yeah.

Speaker 1 (11:22):
I mean, if you and I are going to buy a piece, it
doesn't even have to to be asole ownership.
Maybe the two of us are goingto buy a piece of real estate,
develop it and then sell it.

Speaker 4 (11:30):
Yeah, there's a life, a limited life span of that and
we're not going to bring otherowners yeah, it's like you keep
all your little ventures in alittle bucket of a separate
legal entity for a whole lot ofreasons and I think an LLC is
like the easiest, low-cost wayto do.
If I've got like 15 properties,maybe I'll create a few LLCs as
holding companies and deal withit and the tax issues are a

(11:52):
little bit easier and the legalside is to kind of protect you
from well exactly yeah, goodpoint, Eric.
that's like why peopleincorporate these entities to
begin with you creating likethis veil between you and the
world.
Sure, I know what you're goingwith there, Mark, but the
practical reality is a littlebit different.
But the theoretical reality isthat you have a veil of

(12:16):
non-liability.
Somebody slips on the propertyof Howard and LLC's ice cream
shop and breaks their neck, theycan take a judgment against
Howard and LLC ice cream shopand you don't have that Like
just this veil of non-liability.
The practical reality is muchmore complicated.
You know, like lenders willalways insist on personal

(12:36):
guarantees, there's piercing.
But that's why we do it Like.
That's like the baseline of whydo you do this.
You're creating an LLC or anysort of juridical entity is a
separate personhood with its ownseparate bucket.

Speaker 3 (12:48):
It's like any kind of like legal situation.
Right there's, it's anotherthing that you have.

Speaker 4 (12:54):
Well, it's a speed bump in the process of somebody
suing you for that's rightoblivion.
Yeah, you know.

Speaker 1 (12:58):
Yeah, that's why we do it yeah, but I'm glad that
came up though, because I dowant to talk about that.
I think you know my students.
They all take business law.
Did you ever teach that?

Speaker 4 (13:09):
I've never taught business law, for some reason.
I thought you did.
I teach alternative disputeresolution in the management
department and I'm also teachingethics and corporate
responsibility now, which I'mloving.
That's cool.
They need that.

Speaker 1 (13:26):
But I think a lot of the business law, the business
law classes.
They tell people, well, youknow, this is your protection
against liability.
They never go past that to say,okay, great, I've got a c-corp,
but I'm the only owner of it.
I can't say, well, this, this,you know, these people over here
did something that created someliability that I'm not
necessarily part of because I'mthe owner, I'm the board of

(13:48):
directors and I'm the officer ofthe company.

Speaker 3 (13:51):
So, what are you saying?
You're saying that some peoplethink that C-Corp doesn't
protect you.

Speaker 1 (13:56):
No, what I'm saying is that you're still going to
get sued in a lot of cases.
Sure, whether it's an LLC, a CCorp, any closely held entity it
becomes Luke can tell us moreabout piercing the corporate
veil but it's going to get abank loan If you want a line of
credit.

Speaker 4 (14:15):
You're going to personally guarantee it Exactly.
Someone slips and falls andbreaks their neck.
Of course, the plaintiff'slawyer is going to take a crack
at me personally.
They're going to try to piercethe veil.

Speaker 1 (14:33):
So you want to carry insurance.

Speaker 4 (14:35):
You want to insure the entity and probably up your
personal liability insurance too, Because there's always those
single-member entities are alittle precarious, you know.
It gets better when you've gota more dynamic entity.
That's got like a few moreboard members, maybe more
diverse capital structure andyou've got like all the
trappings of a legit business.
You know, as opposed, to justlike.

(14:56):
This is my alter ego.
I'm going to pretend like it'snot Luke.
It's Luke LLC.
So go take a judgment againstthat and go pee up a.
That's not.
You know, that's a bitdifferent yeah.

Speaker 1 (15:06):
So again, I guess the my point of that is that the
liability protection is a fuzzyright thing.
Right, I mean, because in anyclosely held corporation they're
going to go after the for surethe owners yeah but yeah, llcs
good for limited lifespan, goodwhen the ownership's not

(15:29):
changing right.
Like you said, it's not adynamic entity.
We don't have like ownerscoming and going.
As soon as we start doing that,then and here's another angle.

Speaker 4 (15:39):
that, mark, is that you know a lot of people here
are looking up the ladder alittle bit.
They're looking for the nextbig angel investor, and the
golden outcome for a lot oflocal startups is to find a VC,
which gets talked about a lot.

Speaker 1 (15:55):
Doesn't happen, often Like one out of 500 or
something.

Speaker 4 (15:59):
Right.
I mean you really have a goodbusiness, but you know these
people are going to not.
I mean, I think on the EastCoast the culture is changing a
little bit, but at least for themost part, most VC investors
are going to not want to investin an LLC.
They want you to have a C-corpbecause they're going to want
preferred stock and so if youdon't do it now, you're going to

(16:24):
spend multiple later to convertto the entity that the
investors you want want you tobe in.

Speaker 1 (16:31):
Right, so why not just wait until?

Speaker 4 (16:34):
then let's just start with the C-Corp right and then
you can deal with it, as opposedto later, when you get this
fractionalized interest and youneed a bajillion consents and
it's complicated and you've gotthis mess of documents that no
one's ever looked at.
Now you've got that angel thatyou wanted or maybe, if you
strike it rich, the VC investorthat you wanted, and they come

(16:55):
in and they look and say this isa frigging mess, clean it up,
all right.
So now you've got a big expenseand do LLC members?

Speaker 1 (17:04):
because we don't have stockholders in LLCs.
They're members and they haveownership interest.
Do they all have, to a certainextent, veto rights over
anything, because any change inthe LLC operating agreement
requires all signatures, does itnot?
Is that necessarily a?

Speaker 4 (17:22):
mandate yeah, not necessarily, so it depends on
the well-written operatingagreement can sort of craft your
way around that.

Speaker 1 (17:28):
Okay.

Speaker 4 (17:29):
A lot of operating agreements aren't well-crafted
and so there's a default likegap-filling provisions that come
from a uniform LLC law that alot of states have adopted.
Arkansas has adopted it a fewyears ago.
It just gets more complicatedto do that, but the
fractionalization of interestbecomes a bit problematic.

(17:51):
So a lot of LLCs that I see, alot of ones that I write, now
create a sort of a shadow stock.
We call them units in an LLC.
We've got like how many unitsare you buying in this LLC?
So it's basically mimicking thebehavior of stock I see Trying
to sort of circle the square ofall these problems.
But no, the baseline philosophybehind the LLC is sort of like

(18:14):
this partnership-type entity andusually partners have lots of
rights and so if there's a gap,if we're going to default a lot
of times to sort of common law,partnership law and it's
problematic.
So you know I don't want topoop all over LLCs too much, but
I just tend to recommend for mystartup and new venture clients

(18:34):
that let's just start right nowwith a corporation.

Speaker 3 (18:37):
Is there a difference in cost to the startup between
a C-corp and?

Speaker 4 (18:41):
an LLC.
Yeah, a little bit Like I wouldsay—.

Speaker 1 (18:43):
We've got to have bylaws, We've got to have a
shareholder agreement right,well, so there is a bit more,
eric.

Speaker 4 (18:49):
it's a good point.
There's a bit more of a cost.

Speaker 2 (18:52):
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Speaker 4 (19:07):
So we begin with.
Any entity begins with thefiling of a certificate with the
Secretary of State for a reasonto existence.
With an LLC, your next documentis just the operating agreement
.
That may be the only thing youever mess with With a
corporation.
So we need, like theincorporator will appoint
initial directors.
The directors hold an initialmeeting, which may just be a

(19:29):
piece of paper, adopt bylaws,approve the initial capital
structure and then everybodybuys their shares.
That's like a lot of peopledon't realize.
Like you start a company, youactually have to buy your shares
.
Now, par value for a new corpis usually like a thousandth of
a cent or something, so it's nota big investment.
But we have, for securitieslaws purposes, another big topic

(19:53):
.
We have this sort of structureto where people need to buy it.
So it's documented.
We begin, we file, we create acorporate minute book.
Everything, every step from thefounding of this company to the
present, is documented, withappropriate board resolutions.
Shareholder resolution isnecessary.
We're keeping the book.
I call it.
It's called corporate hygiene.

(20:14):
Yeah, we need good corporatehygiene If you want to go to
founders and funders, angels,crowdfunding entities, et cetera
, like I think some of us aredoing right now then you need to
have a good book.
Yeah, it does take a bit moremaintenance.
So maybe it's a bitself-serving for me to say you
should do this because I'm alawyer and I do that you can

(20:36):
maintain this, though for asmall business.
Exactly.

Speaker 1 (20:38):
You can just handle all that and say you guys need
to do this X, b, a, b, c, d.

Speaker 4 (20:43):
I'll keep your minute book for you.
We'll share the file, you canalways access it, and so it's
like a little bit self-servingfor me to say that, but it's
like a dentist.
The dentist says go to thedentist every six months is
right.
Does really is because theydon't want you to come back with
like a mouthful of root canals.
you know yeah, we all haveobjective interest right healthy
clients like I want my peopleto be out.

(21:04):
I love aesthetically pleases meto see well-kept corporate
minute book where everything iscool it's so hard, though, for
small companies.

Speaker 3 (21:13):
Yeah, we got a small business that's trying to get
their idea out.
Whatever they're not doing,they're trying to build a
business.
And then now they got to dealwith corporate but they're not
worried about that stuff.

Speaker 1 (21:24):
Yeah, it's a beer.
Well, that it's just stressful.

Speaker 3 (21:27):
I mean, you've always kind of feel a little bit like
you're under threat, like youdidn't record your minutes, so
therefore somebody's gonna, youknow, have a big complaint and
stuff.

Speaker 1 (21:35):
I mean it's but that's where guys like Luke,
though, you could just say, dealwith this for us.

Speaker 3 (21:42):
But what does that?

Speaker 4 (21:42):
look like Luke.
Yeah, what does it look like?
So one of the things I do is.

Speaker 1 (21:47):
It's like fractional in-house counsel Exactly
fractional in-house counsel.

Speaker 4 (21:51):
So there's a barrier between I don't have anybody
versus I've got to hire in-housecounsel, between I don't have
anybody versus I got to hirein-house counsel.
So there's a sort of increasingbusiness model it's out there,
which I do call fractionalin-house counsel.
Like you basically pay me amonthly retainer, I'll just main
manager business.
You know, a lot of firms arestill on the hourly rate model,

(22:11):
yeah, which is painful becauseyou don't know what you're
getting.
It's like calling the carpenterand you don't know what you're
gonna pay.
You need a quote of us.
Another thing I just try topick like here's a, here's a
flat fee pay.
This will be cool.
You need to move in the nextstep, okay, so you can sort of
budget it.
And then again, the idea is tocreate full transparency so

(22:31):
people know what you're intowhen you're calling a lawyer and
again one of the things I wantto emphasize for people is that
you know, yeah, maybe it's a bitpainful, but when, if you like
somebody, you found a business,everything is roses.

(22:55):
You're going to likerevolutionize the whatever
industry, you're going to movefast and break things Blah, blah
, blah, blah, blah, right andeverything's cool, cliché,
cliché, cliché.
Six months or a year down theline, all of a sudden there's a
lot of friction between you andyour partner.
He's picking at your businessdecisions, he's absent, he
vanishes for three months at atime and he's like meditating in

(23:17):
india or whatever.
And you're like now I'm gonnago to the lawyers, we got a
problem and you hand them likethis thing you generated off
chat, gpt or you download itfrom rocket lawyer and the
lawyer like reads it over, putstheir head in their hands and
does this and says here's thesix ways you're screwed.
Yeah, it's gonna cost you fiftythousand dollars.
So you know that little bitagain, a little bit of like

(23:40):
going to the dentist six monthsago might have saved you a root
canal today.
That's sort of my philosophy.

Speaker 1 (23:44):
that's a good analogy , yeah, so let's talk a little
bit about, um, this whole thingof, uh, getting investors in
privately held companies and theaccredited investors or or
whatever the terminology is.
I think there's a coupledifferent terms that are used.
Tell people a little bit aboutthat, yeah, for sure, how that

(24:07):
works.

Speaker 4 (24:08):
That's a thing that trips a lot of people up.
That people are fluent with isthat every time you sell any
interest in your company, you'vecommitted, basically, a
securities law event.
This is a regulated thing.
Like I have a worm farm and Isell you a dollar interest in my
worm farm, promising you thatI'll triple your investment in

(24:28):
six months.
I just committed something theSEC is probably interested in.
Right right Maybe not, butthat's the idea.
Right right, Maybe not, butthat's the idea.
Any sale of what is called asecurity, and that is any sort
of equity ownership in yourcompany, is a regulated event
and if it is not registered,then it is forbidden.

(24:49):
Registered means like I've donean IPO and I'm trading, like on
the NASDAQ or NYSE or whatever.

Speaker 1 (24:56):
We all know about that Exactly.

Speaker 4 (24:57):
That's like a bajillion dollars of underwriter
fees and all that stuff to gothrough.
So nobody does that in thestartup world.
What we do instead is we lookfor what are called exemptions
from registration.
So I want to sell Mark 500shares of my company and I'm
going to look for an exemptionfrom registration and that needs
to be documented becauseeventually, like a lot of people

(25:22):
think, I'm just going to flyunder the radar and I'll just
sell, nobody will know no onewill ever know.
Maybe no one ever does, butmaybe maybe you're that one
gazelle in the herd that thelion catches.
To make an example out of right, kind of a gross analogy.
Gross analogy, but you know,the sec eventually does, and
state regulators are interestedin this too.
If I sold you 500 shares of mycompany and all I do is say you

(25:47):
give me a check and I'll justgive you a piece of paper that's
a stop certificate on it, wejust like laid a minefield in
front of us that somebody'sgoing to step on at some point.
So what we do again?
So we look for the sort ofbaseline, Easiest way around
this is only sell shares tomillionaires.

(26:09):
Millionaires, yeah right, nicelittle rhyme.
Millionaires are for the mostpart what we call accredited
investors.
That's a term of art insecurities law compliance.
That means they'resophisticated enough they can
bear the loss.
It's not like somebody'sgrandma.
They know the risk, they knowthe risk, they can bear the risk
.
And so you sell to what arecalled accredited investors and
there are specific exemptions insecurities laws that make that

(26:32):
work.
But you still need a good stockpurchase agreement that says it
makes all these representations.
That person needs to check a box, call it a credited investor
questionnaire that you can putin your file in case anyone ever
comes looking right.
And then here's the big thing alot of people don't ever screw
with.
You need to file something withthe Securities Exchange

(26:54):
Commission.
There's a thing called a form D.
That just it's veryinformational.
Most of the time nobody everreads it.
But you're supposed to do itand if you don't do it you might
lose your ability to rely onthis exemption in the future,
being able to file a Form D.
You're in the Edgar database.
Getting the codes can becomplex, but it's worth it In

(27:17):
doing all this stuff.
People say why do I have to doall that?
Like, nobody does this stuffright.
I've never heard of this.
I'm just going to sell mark 500shares and not spend a
bajillion dollars.
Well, yeah, later the companyis going gangbusters.
We're making money hand overfist.
Now we're ready for VC and theycome in and look at it.
You've made all these sales.
You've got liability,securities law liability lying

(27:40):
all over the place.

Speaker 1 (27:43):
Now you're gonna hit the radar of the right.
Now you may hit the radar, yeah, but here's even the more
tangible bad situation thathappens.

Speaker 4 (27:49):
Maybe somebody's not an accredited investor right.
They're the close.
Or you didn't document it rightor you did something wrong.
Remember the close.
Or you didn't document it rightor you did something wrong.
What you've done is you'vehanded them a loaded gun to
point at your head whenever theysay I don't like this company
anymore and I want my money back.

Speaker 1 (28:04):
It was misrepresented , the deal.

Speaker 4 (28:12):
This was a sale of an unregistered security that
didn't apply for an exemption.
That means the purchaser hasthe right to rescission of the
sale.
That means undoing it Interestand attorney's fees.
That's a gun that can point atyour head whenever they, because
invariably some shareholderbecomes a problem.
We've all experienced it.
Somebody becomes a pain in thebehind.
That person will look they see,the company's not going away.

(28:34):
They like that it's going andthey're going to hand it to a
lawyer.
And the lawyer's going to go ha, they see, the company's not
going away and they like thatit's going and they're going to
hand it to a lawyer.
And the lawyer's going to go ha, guess what?
This was actually in violationof securities laws.
And here's the gun we can pointback at them.
Bend them over a barrel to getyour money back, with some extra
juice on top of it.

Speaker 3 (28:48):
So that's the risk and I'd add another practical
thing to that that maybeentrepreneurs will really get
right and be impactful is thatif you don't have all that stuff
done correctly and you do haveVC capital or investors come in,
it's going to extend that duediligence process.
So what could have closed toget the capital in 30 days, now

(29:09):
it's going to be 90 days, sixmonths.

Speaker 1 (29:11):
Or you're going to sell the business and it's the
same problem and sell itentirely.
That's a really good point andthat's where real money hits you
in the face right and that's in.

Speaker 3 (29:21):
As an entrepreneur you're like.
Well, a capital opportunity isa big deal for you to grow your
business.

Speaker 1 (29:26):
If it gets stalled out, it's it's the same thing as
having audited financials, ahistory of audited financials.
It's going to speed things upversus.
Here's our compilation thatcame out of QuickBooks okay.
I mean there's no faith in that, so there's going to have to be
a lot more diligence.

Speaker 3 (29:43):
Yeah, the whole due diligence process.
It's just painful, painful,painful.

Speaker 4 (29:46):
Eric raises a fantastic point that the due
diligence process gets expensiveand the longer it goes on, the
more likely it is that a dealwill fall through.

Speaker 3 (29:55):
Yes, yes, time's the enemy I agree, well, people just
start, you know the buyerstarts losing their oomph to it.
Right, they just get lessexcited, or macro events change
or whatever.

Speaker 4 (30:08):
Interest rates go whatever.

Speaker 1 (30:10):
Anything happened in the business that makes them
concerned?

Speaker 3 (30:14):
Yeah, the CEO decided to do something different.

Speaker 1 (30:16):
Right?
I mean, there's just a millionthings that can go wrong, as we
all know.

Speaker 4 (30:21):
The difference between one month of due
diligence and three months orsix months can be a deal killer
100%.

Speaker 3 (30:27):
And, by the way, if you're the entrepreneur, like
the amount of time and energy ittakes to go through that is
exhaust, that takes you awayfrom the primary business, and
then the business itself suffers, and then the valuation suffers
or the buyer's concerned right.
Yeah, all those things.

Speaker 1 (30:44):
It's bad yeah.

Speaker 3 (30:44):
So to me the attractive thing of really about
the C Corp deal is a hundredpercent about the, the, I guess
the just the energy thelegitimacy, the legitimacy the
fluid part of having a reallyclean corporate hygiene so that
I can raise capital quickly andget back to work.

Speaker 4 (31:02):
Exactly, Eric.
And another thing about aC-Corp, too, is that it has the
power to issue multiple classesof stock.
Yes, so if you want to issuepreferred, like you're going to
get here's some guys that I wantto bring them in, but unlike my
other shareholders, I want togive them a dividend or interest
or whatevs then you can do thatand you create another class of
stock and you can do that withthe c corp.
You can't do that with s corpand you can do it quickly.

(31:25):
Yes, you know I'd be to file anamended certificate of
incorporation, but it's much,much easier to do with this.

Speaker 3 (31:32):
so let me this practical example like, let's
say, Mark is interested inputting money in my business and
we agreed, hey, you're going toput $20,000 in right, and my
value is this I mean well, firstof all, is valuation even such
a big deal?
Yeah, there's got to be.
At that level because I'm goingto give you so many shares back
for your $20,000,.

(31:53):
But there's possibility ofdilution down the road, which
everybody understands rightright right.
So that whole discussionevaluation is another sticking
point, right like what am Iworth?
yeah, exactly so mark's gonnagive me 20 grand.
To be honest with you, like I'm, like I don't, 20 grand is not
much to me, but it is a littlebit helpful.
You know, right, my cat, mycapital yeah, which is great,

(32:13):
but you're not you're not, I'mnot exiting.

Speaker 1 (32:15):
No, I don't want to spend 30, 60 days dealing with
your 20 grand Exactly.

Speaker 3 (32:20):
Yeah, it's a minor thing, but that's part of my
problem, Like I've always hadthis problem, Like I've got
folks that would like to be partof the businesses that I'm
doing.
They know, they can see, youknow the momentum and stuff.

Speaker 1 (32:37):
But like to deal with that all the sort of like yeah,
what's your valings value?
Well see, that's why I rely onhim.

Speaker 3 (32:41):
Well, okay, it solves that problem so you can just
say hey, go talk, yeah, no, Idon't say hey, go talk to Luke.

Speaker 1 (32:47):
I say, luke, what do I have to do?
Paper this up.
Give me all the stuff thatthey've got to fill out or sign
in order for this to be legit.
Yeah, okay.

Speaker 4 (32:57):
Valuation is a bit more sticky, though, you've got
to have sort of a meeting in themind between you and your
investor.
Yeah.
You know, do you need to go getlike a back of the envelope
valuation?
I mean there's a whole cottageindustry out there of people
that provide valuations of newventures, or it's arbitrary.
That are private company and itis really arbitrary.
But if you can just avoid allthat, you say look, here's my

(33:21):
revenue, here's what theexpectations are.
If you're cool with it, I'mcool with it, and just try to
always make sure that you don'tundervalue what the last people
put in that, because thatcreates a lot of stress.

Speaker 3 (33:31):
Yes, but yeah, if you can agree, Because I sold Mark
100 shares for $20,000, but thenI sold somebody else 200 shares
for $20,000.
Yeah that creates a lot of badlives.
That raises Mark off.

Speaker 1 (33:42):
Yeah, if I find that.

Speaker 4 (33:44):
Real fast.

Speaker 1 (33:44):
Can we go?
I just want to go back to thissome things that came up with
the two of you both here.
So, first off, define what anaccredited investor is for our
audience.
Absolutely, You've got to havea certain net worth and a
certain income, and that networth has to be outside of your
personal home.

Speaker 4 (34:03):
Absolutely so.
An accredited investor issomebody that has either
$200,000 of income per year overthe last two years, as shown
there, 1040s or a milliondollars in assets excluding
their primary residence, andthere's a whole slew of
subcategories of other thingsthat could be institutions and

(34:26):
whatnot.

Speaker 1 (34:26):
Isn't it like $300,000 if you're married?

Speaker 4 (34:29):
If you're married $300,000,.
Right, yeah, okay, and then so,but the policing of that is
pretty easy.
And then so, but the policingof that is pretty easy.
So if I'm selling you, if Iwant to sell you some shares,
what I'll just do is hand you anaccredited investor.

Speaker 1 (34:44):
Can I question that?
Yeah, and I don't have to do.

Speaker 4 (34:46):
I want to qualify that a little bit too because
part of that is the SEC doesn'tlike people publicly advertising
.
Hey, you can't go on theinternet and say here's my
company, we're taking investors,now come sign up.
Okay, that is a big no-no.
Yeah, like I can't even stresshow big of a no-no that is.
Uh, that's called a generalsolicitation and a rule from

(35:08):
506b.
You're not allowed to do anygeneral solicitations.
It needs to be like people youalready know.
If you want to do the generalsolicitation like I'm just going
to cast it out, I could say I'monly going to take accredited
investors.
Well, if somebody like contactsme off the internet that I
don't know from Adam, then atthat point I need to see their

(35:28):
1040s.
Like I really need likedocumented proof.
I can't just give them a checkthe box self-cert Like.
I have to have proof of my file.
The best practice, I think, isto not do what we call general
solicitations, which is like puton your website, we're taking
investors that just like raises15.
That will get the attention ofregulators.

Speaker 1 (35:50):
Let's go back to that income thing for a minute.
Let's say I've got a tax returnand grossed 1.1 million dollars
last year but with all mydepreciation on my real estate
and everything else, my taxreturn says I made 82.5.
Am I gonna have a problem withthat's?
Like boy, you got an investoryeah, you got me there.

(36:11):
Because, I mean, I think that'scommon for a lot of people.
What's the bottom line on your1040?
There were years.

Speaker 4 (36:16):
What's the bottom line on your 1040 is what I
would typically tell people togo by.

Speaker 1 (36:21):
I had $800,000 worth of depreciation.
I just reduced my incomedramatically.

Speaker 4 (36:26):
In that situation, I'm probably just going to rely
on the fact that you probablygot more than $200,000 worth of
assets too.

Speaker 3 (36:43):
Oh, my assets could be off the chart.
But I'm just saying it's eitheror it doesn't have to be both.
Oh, I thought it would say tobe both.
No, no, no, no, no, it could beeither, or oh okay.

Speaker 2 (36:45):
Yeah, you can still have assets, yeah you can
basically liquidate in in youryeah, I guess the whole thing to
this, so the whole premise,this I think.

Speaker 4 (36:51):
I'm sorry I've been talking backwards for the
benefit of the audience.
It's a.
It's a.
It's a million dollars inassets, or $200,000 a year in
income.
I've been talking backwards.
I have too much coffee thismorning.

Speaker 1 (37:02):
No, you haven't been talking backwards, I'm confused.

Speaker 4 (37:05):
No, no, no, yeah, it's back.
But again, mark, it's an eitheror it's either the income or
the assets.
If you check one of those boxes, you're cool and they're just
assets.

Speaker 3 (37:15):
It doesn.

Speaker 1 (37:15):
If you check one of those boxes, you're cool Very
important to know and they'rejust asking it doesn't matter
Just outside of your real estate.

Speaker 3 (37:23):
It could be stocks, other real estate.
Business value all this stuff.
Outside of your primary home,primary residence.

Speaker 4 (37:26):
Yeah, primary residence.
Anything else is cool?

Speaker 3 (37:29):
I think the thing that's important for
entrepreneurs to understand isthe reason for those
stipulations and thoserequirements and for the SEC and
for all these regulatory isliterally to protect the
investor, because from the dawnof time people have been ripped
off.
Oh yeah, crazily sure waybefore our, our generation 18th

(37:49):
century.

Speaker 4 (37:50):
Yeah, the South Seas company and people buying shares
and like the New World Venturesyes, yeah sure.
And bubbles crash.
Bubble crash was the cycle, andfinally 1920s.
Everyone goes, this sucks.
We got to stop this, and so wehave the Securities Exchange Act
.

Speaker 1 (38:08):
The stock market crash, Exactly the stock market
crash in 1929.

Speaker 4 (38:11):
So now we have two major pieces of legislation that
follow that with.
The idea is to protect theinvestor from scammers.
Of course the whole.
I only started on crypto, butthat's a whole other question.

Speaker 3 (38:24):
To me that's actually very that kind of connects a
lot of dots for me as anentrepreneur, right?
And I think hopefully the otherlisteners are like that.
It's like, why do I have todeal with this crap as an
entrepreneur?
Well, it's not because yourbusiness sucks, or it's not
because the government wantsmore money from you and
attorneys want more money fromyou than accountants.

Speaker 1 (38:43):
No, there's a good reason for it.
There's a really good reasonfor it right.

Speaker 2 (38:47):
And.

Speaker 3 (38:47):
I think that if anybody put $1,000 or $10,000
into something, they just don'twant it to poof, go away,
exactly Because there are a lotof ill-intended snake oil sales
things that are going out there.
Yep, and to be a bonafidebusiness, and so it actually
helps protect you as a trueentrepreneur too, because now
you're not in this bucket of abunch of liars.

(39:10):
You do it right, you set it upright, you approach investors.

Speaker 4 (39:14):
That's why it's these laws, eric, that have made the
United States and I'm going toend on a soapbox no, go with it,
I love it One of the bestplaces to invest.
Sure, we have risk tolerance aspart of our culture, but we
have a strong protective systemwith rules that everybody knows
and that everybody plays by.
And that is our traditionEverybody plays by, and that is

(39:37):
our tradition.
That is why we have becomeabove the EU, above so many
other markets like the go-toplace for this dynamic culture
of startup investment.

Speaker 3 (39:46):
I love that statement , and we also have regulators
that enforce those things.
Yeah, that's the other part ofit.
It's what gives the confidencein the markets.

Speaker 4 (39:55):
It gives confidence to investors that we have rules.
That's right.

Speaker 1 (39:59):
God bless America.
God bless America, america,america, I love it Okay, so
finally this comes to where Iwanted to be Now, wait a second,
I want to get off that thoughfor one second.

Speaker 4 (40:12):
Yeah, all right, when are we going next?
Can I dunk on America now?

Speaker 1 (40:16):
No, just go on with your question before you lose
the momentum of this.
What about when these peopleare our employees?
The same rules don't apply.
Let's say Eric's got thisbusiness, he's got a good
manager over there, really wantsto tie that person down and
sell him?

Speaker 4 (40:31):
some ownership.
Great, I'm glad you raised that.
It's a whole new category.
So a lot of people believe thatas long as I'm just selling to
employees, that's cool and that,for the most part, is.
There's a rule rule 701 thatallows you to give equity to
people as compensation.
But again, there's a frameworkfor that.

(40:52):
You're supposed to have awritten plan.
So when people want to do this,the first thing I tell them is
you need what's called aemployee equity incentive plan,
and it's like a six pagedocument or whatever.
I pull it out of my library,custom-tailored to my clients.
You've got this plan, you adoptit with your board it's in the
minutes and then you make anoffer to the employee with a
written document called a youknow, stock grant or an option

(41:15):
what doesn't have to be free?

Speaker 1 (41:16):
what if I'm selling it to them?
There's not a grant?
Okay, if you're selling it, soI'll finance it, okay?
Okay, I'll finance 100 of it,but I'm going to sell you.
You're my number one guy.
I'm going to sell you 10 of mycompany for 200 grand and I'm
going to write a five-year noteand you can pay for it over
bonuses or payroll deduction orwhatever you want.

Speaker 4 (41:37):
We run into this a lot.
So if you're selling, so itover bonuses or payroll
deduction or whatever you want.
We run into this a lot.
So it's one thing to giveequity as compensation, but if
it's a fundraising thing, thenwe're out of that.
We're back to are youaccredited?
If you're not accredited,that's— Even an employee.
Even an employee.

Speaker 1 (41:53):
I'm a law office.
For God's sakes, I'm acorporation, but I've got 10
lawyers yeah, we can get intothat.

Speaker 4 (41:59):
But you know, if the purpose of the equity grant is
not compensation, if I'm notgiving it to you because you're
rendering valuable services tome, but instead it's a
fundraising device, it's neither.

Speaker 1 (42:12):
It's a retention device, and I want you to be
able to get a pot of gold at theend of the rainbow, 20 years
from now, when I sell this well,okay, so you're, you're really
straddling that line.

Speaker 4 (42:24):
Okay, so what you're telling me is that it was really
actually compensation, becauseI want you to keep it around
here.
Now, it's true, practicallyspeaking, a lot of these do
straddle the fence, right?
I always I want people to erron the side of caution, because
I'm conservative and I believein doing the most safe thing.
Oh, you're a self-serving, youjust want to make money off of
law, your fees.

(42:44):
No, I just want you to beprotected.
If it is truly compensation,then we have a whole different
category.
I want you to be retained, likeI'm giving you a discount.
If this is like not what Iwould sell it to another arm's
length investor for then that'scompensation.
And okay, right Now we're in awhole new universe of tax issues

(43:07):
too, by the way, when we dothat.

Speaker 1 (43:08):
Okay.

Speaker 4 (43:09):
You know, I did that for years in my business,
growing it.

Speaker 1 (43:14):
I had 23 or 24 shareholders at the time I sold
it.
That were employees, that wereemployees, were employees, all
employees, no outside owners.
If you grant equity to anemployee, didn't grant anything.
Everybody signed a note andpaid for it through payroll
deduction was it market value?

Speaker 4 (43:28):
no, it was discounted .
Okay, the discount the IRS isinterested in yeah, I know they
want to show that as income forright boy, like if you give that
, if I give, give you stockthat's worth a million dollars
but you only paid 500 for it.
Like you've just recognizedincome of 500 grand.

Speaker 3 (43:43):
I understand that that's what the IRS cares about,
but isn't that a lot morecomplicated than just granting
out stock to an employee?

Speaker 4 (43:49):
Achieving the same thing.

Speaker 1 (43:51):
I'm not achieving the same thing.
I want them to put some skin inthe game.

Speaker 4 (43:55):
Let's say, let's just forget.
They're putting their moneythey're sacrificing their income
in order to invest in thecompany.
Okay, they got skin in the game.
Now let's make the hypotheticala little bit different, so I
can discuss the issue clearlyand then we can move into that,
because you're in, like thisintermediate zone, which is
really complicated.

Speaker 1 (44:14):
This is the world that I came out of.
The professional serviceindustry employs several million
people Architecture,engineering, environmental
consulting.
Okay, that's the way they do itby and large, the majority.

Speaker 3 (44:27):
So it's like an industry kind of vein.
That's what they would do, andso you participate in that.

Speaker 1 (44:33):
Kind of like an attorney's set up partnership.

Speaker 3 (44:35):
Exactly, there's the income mechanism.

Speaker 1 (44:39):
You know the value, never really has any.
The ownership has no valueother than you get more income.
That's one model.
And then there's the model ofYou're investing in this company
and hopefully it grows, andthen you're gonna sell your
stock to somebody below you.

Speaker 4 (44:55):
So are through the company I was gonna say so if
you're granting equity for lessthan market value as
compensation is to stick aroundand retention bonus, there's a
taxable event there.

Speaker 1 (45:09):
I understand that.

Speaker 4 (45:10):
So what we try to do is try to put brackets around
that taxable event.
So if it's, just an outrightgrant the person has received.
Like, if I grant somebody stock, but I granted them that
because I wanted them to make mea loan, then it may be that you
know that grant of stock islike a gift, that guess what?

(45:32):
They just received a milliondollars worth of stock that
needs to go on their 1040.
Yeah, I understand that.

Speaker 1 (45:38):
If I you know.
But again, that's not the modelthat my industry uses
predominantly, predominantly,the person is paying for that
stock.
Sometimes they're paying marketvalue.
Sometimes the company may havean ESOP that requires an annual
appraisal Boom.
Company may have an ESOP thatrequires an annual appraisal
boom, and so they're buyingstock, though outside the ESOP,

(46:01):
at the same valuation that theESOP set, because it's required
to have an appraisal done, allyou every year.
So, but the other shares thatare held outside the ESOP are
trading at the same price rightthat the ESOP shares are.

Speaker 4 (46:15):
Do we have five minutes so?

Speaker 3 (46:17):
I mean, I have to go to nothing, but y'all can keep
going, if it's not because Ihave another show that I have to
do, but y'all can keepdialoguing because this is
freaking awesome, super valuableit is.
I hope you come back, luke.

Speaker 4 (46:28):
Oh yeah, anytime man.

Speaker 1 (46:38):
Yeah, that'd be awesome.
Keep going, I'll just slip out,okay, and nobody will ever know
that lot up for real quick,okay, well what can we do to?
Harass luke while you're here,because I think it's important,
we should give him a hard timewell, I think well, yeah, but I
mean, actually I'm reallyinterested in asking questions.

Speaker 4 (46:52):
I mean, this is kind of like free free so.

Speaker 3 (46:55):
I mean the thing about.
You know, I would love toreally understand like, how,
like, because to me the businessis about growing, yeah, having
a structure that allows for fastgrowth.
Here's what drives meabsolutely insane.
I can never get down to a realsolid answer.
I feel like that Silicon Valleyhas some sort of secret that we

(47:18):
don't have in NorthwestArkansas that allows them to
grow rapidly with VCs.
It's just like boom, boom, boom, like I mean, I watch the news
every day about this stuff.
It's insane, but you get toArkansas, and here I am they
want to talk multiples of EBIT.

Speaker 1 (47:35):
It's like forget that .

Speaker 3 (47:36):
I know it's like my God man I don't have.
Look, my valuation isconstantly growing, Like, if I
told you it was a million today,it's going to be a million and
a half tomorrow and it's goingto be 2 million and 3 million.
And you're going to be like,well, show me the numbers,

(48:01):
no-transcript, and I'm like Idon't have time for that.
It makes me so aggravatedbecause I feel like I'm running
in mud.
Yeah, like, how do I build astructure, just something that
is fluid, because those guys aredoing it, they are doing it all
day.

Speaker 4 (48:20):
Luke, we're catching up, though I think that's
something about NorthwestArkansas.
Is that for all of ourrah-rah-rah-ism, we're still
behind?
But we're getting there.
People are getting used toseeing Northwest Arkansas
companies and understandingwe're the retail capital of the
world.
Yes, and that there's actuallya lot of free money chasing good

(48:41):
ideas around here.
What we need, eric, is moregood ideas, and I think we'll
get that.
Like West Coast, like the Bay.

Speaker 3 (48:47):
Area's got shit.
I got a shit ton of good ideas.

Speaker 4 (48:50):
They got like Stanford and they've got, like
you know, culture of like.
They've got Y Combinator,they've got well-established
accelerators.
We're getting there.
It's just like it takes somebuilding, building, building,
but we're getting there.
So okay.

Speaker 3 (49:05):
So, on my perspective , as in the entrepreneurial
space, I'm ready for that, weare ready.
I know folks that are ready forthat.
My hurdle is the legalstructure of it.
So you got when we talk aboutwe got the entrepreneurs over
here and we got the investorsover here.

(49:26):
I know a lot of theentrepreneurs, I know a lot of
the investors.
My problem is, is that what isthe bridge between them?
That I can't seem to find outthe answer right now to make the
bridge comfortable for bothparties to walk across and meet
and do something.
That's a beautiful picture.

Speaker 1 (49:45):
Thank you, mark, it is.

Speaker 3 (49:47):
And I'm so infuriated by this Bridge is not being
built, and that's the bridge I'mtalking about.
That's in Silicon.
There is some bridge that isgoing on there that we don't
have here and we've got to buildthis bridge like in 30 days,
because if we don't build it in30 days, there's going to be
some really big missedopportunities and Silicon's

(50:07):
going to build so many bridgesthat they will be the retail
capital.
How scary is that, and I'm nottalking in two years, I'm
talking in six to nine months.
Wow, that's what I see.
And so I want to figure outthat bridge ASAP, because there

(50:28):
is a lot of opportunities thatwe can grab.
And so my question comes okay,is it C-Corp?
Sounds like it's C-Corp, andthis includes employees instead
of us, because that's what theydo there too.
Sure Options, that's a big way.

Speaker 4 (50:44):
They get good people.
What's?

Speaker 2 (50:45):
options versus grants versus ESOP versus all this
stuff Just give me the answer.

Speaker 3 (50:51):
I need somebody to give me the freaking bridge.
We've got to talk again, okay,all right, cool, hey, appreciate
you being on the show, mark.
Thank you.
Hey, it's my pleasure, I'mgoing to silently slip out now.

Speaker 1 (51:03):
No well, I think what we need to do is we're going to
end the show today and we'llhave Luke back again.
Oh man, good, we can talk moreabout ESOPs.

Speaker 4 (51:12):
We've been on an hour .

Speaker 3 (51:13):
There's so much to talk about, let's just have Luke
back and this is such avaluable conversation.
I love the name of your company, the Startup Boutique.
I mean I just want to say thankyou for your vision for our
founders and startup andentrepreneur.
I mean I'm glad to know thatyou're available because this is

(51:34):
such you know.
And thank you, mark, forbringing Luke in man.
I mean like yeah, it's a goodthing, this is such you know.
And thank you, mark, forbringing bringing luke in man.

Speaker 1 (51:38):
I mean like yeah, no, it's a good thing the thing is
I do want to emphasize, though,to the group uh, our listeners
out there luke does deal withmore than startups, right, but
you know, like we've got asituation and he works outside
of the state too, I mean we.
He helped me out on a deal incalifornia where we wanted to
sell stock to keep people in acompany, and so all these issues

(52:03):
are, you know, this wholecompliance issue and coming up
with the method to do it and belegit.
You need the assistance ofsomebody that does this every
day.
I guess that's the point.

Speaker 2 (52:14):
We're never going to know all this stuff people like
you and me no exactly, and Iwould say for our audience.

Speaker 3 (52:19):
you know, because we got, you know, experienced
entrepreneurs, and then peopleare thinking about it.
People are just starting up andI mean, I think the testament,
I mean the experiencedentrepreneurs know how important
a legal partnership is, justlike accounting partnership.
It's Like it's huge, yeah, andyou don't know until you need it

(52:40):
, which is terrible.
But for startups like you,definitely need to go talk with
somebody.
You need to build arelationship with your legal
partners.

Speaker 2 (52:50):
Yes, and it doesn't have to be just one.

Speaker 3 (52:52):
Right, because if we got in an M&A situation,
Different strokes for differentfolks.

Speaker 4 (52:56):
There's a community around here, it's a small
community, but I'm very happy toalways refer people to other
firms around here when I needhelp.

Speaker 3 (53:08):
And so we're building too the legal to get together
and do this.
Yeah, because there's some goodfirms, like when you start
talking to a big acquirer, likeyou might need some
specialization, yeah, in thosenegotiations, right, that know
how to how to discuss thatnegotiate.

Speaker 1 (53:24):
I mean dealing with things like warrants and reps oh
god that's that's the wholething right there.
Okay, so generally the buyerwants you to like guarantee all
your employees and clients willstay for life, that's right,
Okay with unlimited liabilityand, as a seller, I want the
chains off.

Speaker 3 (53:42):
My friend, exactly, I don't want to work for you for
five years.
That's where a really goodattorney comes in A hundred
percent and it's also where areally good entrepreneur that's
working with a good attorneyknows their negotiation
leveraging stick, because youcan have a vision of how you
want to sell, yes and you don'thave to succumb to just whatever

(54:04):
the buyer gives you.

Speaker 1 (54:06):
No, absolutely.
Hey, we're going to pick thisup again.

Speaker 2 (54:09):
Great episode.
Is that okay yeah?
Let's come back.

Speaker 4 (54:11):
I hope people get a hold of Luke, real quick To
reach you?
Yeah, that was going to be mynext question.
How do they get a hold of me?
Yeah, lucas, renier lucas atrenierstartupboutiquecom.
You can also just Google RenierLaw Firm.
You'll see my smiling mug on mywebsite.
Shoot me an email.
I'm still Renier R-E-G-N as anegative I-E-R.
All right.

Speaker 1 (54:31):
Thanks guys Appreciate it, hey, thanks,
thanks everybody.
This has been another episodeof Big Talk about
SmallBusinesscom.

Speaker 5 (54:48):
Thanks for tuning into this episode of Big Talk
about Small Business.
If you have any questions orideas for upcoming shows, be
sure to head over to our website,
wwwbigtalkaboutsmallbusinesscomand click on the ask the host
button for the chance to haveyour questions answered on the
show.
Stay connected with us onLinkedIn at Big Talk About Small

(55:09):
Business and be sure to headover to our website to read
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